Targeting Counsel in Asbestos Cases: From Bankruptcy Disqualification to RICO
Asbestos liabilities have caused a number of companies to seek the protection of the bankruptcy laws to manage the present and future stream of tort claims and to facilitate insurance recovery. A special provision of the Bankruptcy Code was added in 1994 to facilitate the resolution of asbestos claims in bankruptcy, 11 U.S.C. § 524(g).
A more recent wrinkle in the asbestos-driven bankruptcies has been use of "pre-packaging," or the "pre-pack," wherein before the bankruptcy filing the debtor and its principal creditors negotiate the resolution and then go to bankruptcy court to obtain judicial imprimatur. For several reasons, the insurers have begun to pull out all stops in fighting against asbestos bankruptcies, most recently attacking counsel for the policyholder, where that insurance counsel was too involved in pre- and post-bankruptcy matters.
Why insurers fight asbestos bankruptcies
One of the major issues for carriers in these asbestos bankruptcies is the potential for radical acceleration of their obligation to pay. Whether in a pre-pack or in a traditional bankruptcy, the asbestos claims are funneled into a trust, which thenceforth makes payment. An important issue from the perspective of insurance companies is that some courts have held, following a Seventh Circuit decision, UNR Industries, Inc. v. Continental Casualty Co., 942 F.2d 1101 (7th Cir. 1991), that upon the creation of the trust the obligations of the insurance companies become due immediately. But cf. Amatex Corp. v. Aetna Cas. & Sur. Co., 97 B.R. 220 (Bankr. E.D. Pa.), aff'd sub nom. Amatex Corp. v. Stonewall Ins. Co., 102 B.R. 411 (E.D. Pa. 1989), aff'd, 908 F.2d 961 (3d Cir. 1990).
So, if the policyholder-debtor anticipates $250 million of claims in the future, once the trust is created the carriers have a present obligation to perform and pay the $250 million, even though the trust itself won't make immediate payment to individual claimants. For example, a carrier who sits above $200 million in underlying coverage could expect that, given an asbestos claim burden of, say, $25 million a year, it would not be called upon to pay until another decade passes. However, under the Seventh Circuit's theory, because the insured's obligation to the creditor class of tort claimants is satisfied and extinguished upon the creation of the trust, that excess carrier's obligation to pay becomes immediately due.
Because the stakes for insurers in these asbestos bankruptcies are so high, it is in the insurers' interest to object to the plan and to engage in various tactics designed to gum up the works, including recently challenging whether insurance counsel for the insured can properly represent it.
Congoleum: disqualifying the debtor's insurance counsel
The Third Circuit in a recent case, In re Congoleum Corp., 426 F.3d 675 (3d Cir. Oct. 13, 2005), held that a law firm would not be able to continue to serve as counsel, holding that (i) it was important to allow early appellate review of such questions because after a plan was confirmed it would not be likely that the proceeding would be sent back to square one due to the improper selection of counsel and (ii) counsel for the insurance companies had adequate standing to raise questions of conflict of interest of the policyholder's counsel, due to their independent duty to the court and as members of the bar. The court also held that the insurance companies themselves had standing to appeal the retention of counsel selected by the debtor/policyholder and approved by the principal creditors (the tort claimants), even under the restrictive standard for appellate standing in bankruptcy, though it did not decide whether insurers' counsel had a duty, as opposed to a right, to raise the conflict.
In the particular case, the law firm had been involved in negotiating the claims resolutions and claim-value matrix pre-petition and worked ultimately as co-counsel with the asbestos plaintiffs' counsel, due to the shared objective of wringing the maximum amount of money out of the insurance program. Nevertheless, the settlement permitted the tort claimants to renew their claims against the debtor in the event that insurance money was unavailable, and that feature, together with the close ties between the debtor's coverage counsel and the plaintiffs' lawyers, led the court to conclude that counsel had a conflict of interest.
The law firm had sought to disclose its differing relationships in its retention letter, but the court questioned whether the disclosures were adequate and whether it had received appropriate and knowing waivers from all concerned. Moreover, the court found that given counsel's broad-ranging role the conflicts questions could not necessarily be resolved by private waivers, due to the Bankruptcy Code's requirement that counsel be disinterested (an objective standard policed by the courts).
The court did not reach the question whether counsel's fees would need to be disgorged, but noted that in other bankruptcies the same counsel had been found to be ineligible to collect its agreed-upon fees. While it is clear in the circumstances that the debtor and the asbestos-claimant creditors were seeking a resolution that was efficient and that would bring maximal value to the estate, the Third Circuit plainly was concerned with the appearances of integrity, professionalism, and disinterestedness by those involved, especially because in a pre-pack the parties negotiate the "reorganization" in private and seek to clothe their private deal with the blessing of the court. The Third Circuit found it more pressing in those circumstances to be mindful of the appearance of conflicts, and so it ruled that the firm could not serve as debtor's counsel.
Of course, this detour does not change the business reality of the company's having only limited assets and a large stream of asbestos claims, and the insurance assets being the sole realistic vehicle for resolving the asbestos claims. But since most companies that enter bankruptcy in these circumstances seek to establish a ringfence around their liabilities in part to assure investors of their being in control of their finances, it undermines the goal of establishing certainty to allow these detours and fights over counsel. But given the success insurers have had in challenging counsel, the best strategy for debtors is to reduce the likelihood that insurers will be in a position to question the selection of counsel in the first place.
Update: the bankruptcy setting today
The incentives that led insurers to challenge the debtor's counsel in Congoleum have only sharpened, and the Supreme Court has since addressed both sides of the equation.
Insurers no longer need to work through their lawyers' duties to the court to be heard. In Truck Insurance Exchange v. Kaiser Gypsum Co., 602 U.S. 268 (2024), a § 524(g) asbestos case, a unanimous Court held that "[a]n insurer with financial responsibility for a bankruptcy claim is sufficiently concerned with, or affected by, the proceedings to be a 'party in interest' that can raise objections to a reorganization plan." Id. at 272. The insurer there objected that the plan reflected a collusive arrangement between the debtors and the claimants' representatives, under which claims paid with its insurance, unlike claims against the trust, required no disclosure of other exposures, exposing it to "millions of dollars in fraudulent tort claims." Id. at 276. The Court rejected the "insurance neutrality" doctrine that had kept the insurer out, while noting that § 1109(b) gives insurers "neither a vote nor a veto; it simply provides them a voice." Id. at 272, 283. Kaiser Gypsum resolves in insurers' favor the standing question that lurked behind Congoleum, and it puts the conduct of those who negotiate a plan, and the integrity of the claim-disclosure process, squarely within what an insurer may contest.
At the same time, § 524(g) has become more valuable to asbestos debtors. In Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), the Court held that the Bankruptcy Code does not authorize nonconsensual releases of claims against nondebtors, pointing to § 524(g) as the express exception Congress made for asbestos cases alone. Plans already consummated may survive: the Third Circuit declined to disturb the Boy Scouts plan's releases and channeling injunction, though "[i]f proposed today, the Plan would be unconfirmable in the wake of Purdue," because the plan had gone effective and the insurance buybacks had closed. In re Boy Scouts of America, 137 F.4th 126, 170 (3d Cir. 2025), cert. denied, No. 25-490 (U.S. Jan. 12, 2026). Going forward, though, the asbestos channeling injunction stands nearly alone, and with more riding on a § 524(g) plan, the lawyers who negotiate it, on every side, can expect continued scrutiny.
Update: the defendant goes on offense against plaintiffs' counsel
Twenty years on, the lawyers in the crosshairs are not the debtor's insurance counsel but the asbestos plaintiffs' bar, and the weapon is not a disqualification motion but a civil RICO complaint. On November 6, 2026, Judge Robert W. Gettleman of the Northern District of Illinois allowed RICO claims by a pipe manufacturer to proceed against one of the country's most active asbestos plaintiffs' firms. J-M Manufacturing Co. v. Simmons Hanly Conroy, LLP, No. 24 C 3853 (N.D. Ill. Nov. 6, 2026).
J-M sold asbestos-cement pipe from 1983 to 1988 and has been named in more than 6,000 asbestos suits since 2000, more than 430 of them filed by Simmons Hanly. J-M describes itself as a target of the "post-bankruptcy wave" of asbestos litigation: once the makers of friable insulation products were driven into bankruptcy, the plaintiffs' firms turned to peripheral defendants. J-M alleges a "Simmons Hanly Fraud Playbook" consisting of scripted product-identification testimony, uniform stories of cutting pipe with power saws "hundreds" of times, coached denials that warnings were seen, evasive discovery responses, and suppression of evidence of exposure to bankrupt companies' products, including, in one case, concealment of a bankruptcy proof of claim. The amended complaint added Sokolove Law, which allegedly generates leads for Simmons Hanly in exchange for a share of the recoveries, and the firm's chairman, John Simmons. The case had seemed to be over. In March 2025, the court dismissed the original complaint for failure to plead an enterprise distinct from the RICO defendants and entered judgment for the defendants, J-M Mfg. Co. v. Simmons Hanly Conroy, LLP, No. 24 C 3853, 2025 WL 843854 (N.D. Ill. Mar. 18, 2025). Simmons Hanly announced that the suit had been dismissed with prejudice and called it a "baseless and retaliatory" effort to undermine its advocacy for asbestos victims. Six months later, the court vacated the judgment and granted leave to amend, J-M Mfg. Co. v. Simmons Hanly Conroy, LLP, No. 24 C 3853, 2025 WL 2663224 (N.D. Ill. Sept. 17, 2025), and the amended complaint cured the enterprise defect.
Three rulings stand out.
First, Noerr-Pennington did not end the case at the pleading stage. Petitioning the courts is ordinarily immune, and the lawyers who do the petitioning share that immunity, but sham litigation and intentional, material misrepresentations are not protected. The defendants argued that settlements and a jury verdict for their client showed the underlying suits were not baseless. The court looked instead at a voluntarily dismissed case in which the employer's owner allegedly told a Simmons Hanly lawyer on the day of filing that the exposure allegations were false, and the lawyer allegedly answered that the firm already knew. That was enough to plead both branches of the sham exception. The court cited a parallel ruling in Uber Technologies, Inc. v. Simon & Simon P.C., No. 25-5365 (E.D. Pa. May 11, 2026), in which Uber's claims that lawyers directed the creation of false medical records also survived.
Second, litigation conduct is not categorically excluded from RICO's predicate acts. The defendants relied on Kim v. Kimm, 884 F.3d 98 (2d Cir. 2018), which declined to treat litigation activities as racketeering. Judge Gettleman read Kim as counseling caution rather than creating an absolute bar, and he quoted Garlock Sealing Technologies, LLC v. Simon Greenstone Panatier Bartlett, No. 3:14-cv-116 (W.D.N.C. Sept. 2, 2015), that "there exists no broad shield from RICO for attorney advocacy." The Garlock lineage matters here. That RICO suit grew out of the Garlock bankruptcy estimation, In re Garlock Sealing Technologies, LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014), where the court found that Garlock's settlement history had been "infected" by the withholding of exposure evidence, much of it concerning products of bankrupt companies whose trusts were paying the same claimants.
Third, the state-law claims failed. Applying California law, the court held that California's anti-SLAPP statute does not apply in federal court, but that California's litigation privilege bars fraud, unjust-enrichment, and civil-conspiracy claims whose gravamen is communications made in litigation, including fabricated evidence and coached testimony. The upshot is that federal RICO, not state tort law, is the path these claims must travel. The court dismissed the state-law counts without prejudice and ordered the defendants to answer the RICO counts.
The decision is a pleading-stage ruling on allegations taken as true, and the defendants deny them. But it closes a circle with Congoleum. In 2005, the concern was that a pre-pack let the debtor's coverage counsel and the claimants' lawyers fix claim values in private, with the insurers paying the bill. The J-M complaint alleges the mirror-image problem in the tort system: that the exposure record in solvent defendants' cases is stripped of evidence about bankrupt defendants' products, so that the solvent defendant, and behind it its insurers, pays for injury attributable to others. In both settings, the integrity of the exposure and valuation record is what is at stake, and the lawyers who build that record are now fair game.
For policyholders, the insurance consequences deserve attention before anyone files. A manufacturer considering a RICO suit against claimants' counsel should consider how the suit will affect its relationship with its liability insurers, who may have funded the very settlements it now calls fraudulent and who may claim an interest in any recovery. It should also consider how allegations of inflated settlements may be used against it in allocation, exhaustion, and reasonableness disputes with those same carriers, and whether its own D&O or other coverage will respond to the counterclaims and fee-shifting motions that predictably follow.
Originally published in Insurance Scrawl on October 15, 2005, as "Targeting Policyholder Counsel in Asbestos Bankruptcy Cases." Republished with updated citation information, editorial revisions, and new update sections discussing J-M Manufacturing Co. v. Simmons Hanly Conroy, LLP (N.D. Ill. Nov. 6, 2026), and, for context, Truck Insurance Exchange v. Kaiser Gypsum Co. (U.S. 2024), Harrington v. Purdue Pharma L.P. (U.S. 2024), and In re Boy Scouts of America (3d Cir. 2025). This post is not a comprehensive survey of subsequent law.
Related: Insurance Coverage · Settlement Counsel · Articles and Publications · Marc Mayerson's biography
Topics: Asbestos Coverage · Bankruptcy and Insurance · Insurer Standing · Policyholder Representation · RICO
Comments